Part 36 Offers – When and How to Make Them
In any claim above £10,000, a claimant in litigation may make an offer under Part 36 of the Civil Procedure Rules (‘CPR’). If a party does not accept an offer made under Part 36 (a “Part 36 Offer”), it will pay an extra 10% uplift on damages, more costs and more in interest if it does not beat that offer. A defendant can make an offer to pay a certain amount of the claim plus the claimant’s costs to the time the offer is accepted as long as it is within 21 days of the offer being made. If the claimant does not accept it and does worse at trial it will be ordered to pay the defendant’s costs from 21 days after the offer was made. As a result, a Part 36 offer is a fundamental risk mitigation tool for litigants involved in Fast Track or Multi-Track proceedings. Part 36 offers cannot be utilised in the Small Claims Track as Part 36 is excluded from small claims under CPR 27 2 (g).
Part 36 offers can be made at any time during the proceedings and even before court proceedings are issued. In general the sooner the better.
If a Part 36 offer is made 21 days or more before the start of a trial, it must also specify a period (the “Relevant Period”) of not less than 21 days within which the Defendant will be liable for the Claimant’s costs if the offer is accepted.
A Part 36 offer cannot be withdrawn or changed to be less advantageous to the other party until the Relevant Period has expired without the court’s permission.
Part 36 offers should be made on a without prejudice save as to costs basis meaning that they are privileged and not disclosable to the Court until after it has reached judgment.
A Part 36 offer must be made in writing and should also enclose a signed and completed Form N242A:-
The form should confirm whether it applies to the whole or part of any claim and whether it takes into account any counterclaim. Subject to a few exceptions, a party who wishes to accept a Part 36 offer can do so at any time as long as the Part 36 offer has not been withdrawn. Importantly, if a party makes more than one offer, the other party can still accept an earlier offer if it has not been withdrawn. However, where a trial has already started, the court’s permission to accept the offer is required. Any acceptance in writing should also be accompanied by the Notice of Acceptance which is found towards the end of the Form N242A.
A party may, within 7 days of a Part 36 offer being made, request the other party to clarify the offer. If no clarification is received within 7 days of receiving the request, a party may apply for an Order from the court that clarification be given.
Consequences of Acceptance
When a Part 36 offer is made on a money claim, the sum to be paid must be paid within 14 days of the acceptance in accordance with CPR 36.14(6) unless otherwise agreed by the parties in writing. If the sum is not paid within 14 days or the period agreed, the Claimant may apply to the Court requesting that judgment be entered against the Defendant for the unpaid sum. In non-money claims, where a non-monetary Part 36 offer is accepted and a party alleges that the other party has not honoured the terms of the agreement, that party may apply to the Court for an Order enforcing the terms of the offer.
If a Part 36 offer is accepted within the relevant period, the Claimant is entitled to its costs up to the date of the acceptance. If the parties cannot agree to the level of costs payable, they will usually be assessed by the Court on the standard basis which means that the Claimant will likely recover about-70% of the actual costs he has incurred. If accepted outside of the Relevant Period, the parties can agree liability for costs otherwise the Court will make an order as to costs.
Consequences of Non-Acceptance
If a Claimant obtains judgment which is more favourable and/or equal to the terms of a Part 36 offer made, and which a Defendant did not accept, then unless the Court considers t unjust to do, it will order that the Claimant Is entitled to:-
- Interest on the whole or part of any award at a rate of up to 10% above base rate from the date on which the relevant period expired.
- Your legal costs, with those costs incurred after the expiry of the relevant period being assessed on what is called the “indemnity basis”, this can be worth about 30% of your total costs or even more if the case is subject to a low cost budget
- Interest on those costs at a rate of up to 10% above base rate for the same period.
- An additional amount of 10% of the damages awarded for awards of up to £500,000. For awards above £500,000, 10% of the first £500,000 of damages awarded and 5% of any damages awarded above that figure, up to an overall limit of £75,000.
As a result, Claimants need to decide what offers to make as Defendants will not accept offers that are so high that the risks of the penalties referred to above are acceptably low.
If a Claimant fails to obtain a more advantageous judgment than a Defendant’s Part 36 offer, then unless the court considers it unjust to do so, the Claimant will be liable to pay the Defendant’s costs from the date of expiry of the Relevant Period and interest on those costs. This means that even though the Claimant may get a judgment in his favour, it will have to pay some of the Defendant’s costs as a ‘penalty’ for not accepting the Defendant’s more favourable Part 36 offer. Therefore, an early Defendant’s Part 36 Offer allows the Defendant to fight the level of the claim without having to pay the Claimant’s costs if the claim amount is reduced below the offer level. A well judged Defendant’s Part 36 Offer places enormous pressure on the Claimant to settle.